Protima Arora Vs. Maya Gupta and Ors. - The liabilities of the company cannot be simply washed out by action of company of non-compliance of the provisions of Companies Act, non-filing of the relevant financial documents and other filings. If the submission is accepted of the Appellant that proceeding could not have been proceeded, the easiest thing for a company would be to get struck off to wash of its all liabilities, which submission cannot be accepted.

 NCLAT (2024.05.22) in Protima Arora Vs. Maya Gupta and Ors. [Company Appeal (AT) (Insolvency) No. 72 of 2024 with Company Appeal (AT) (Insolvency) No. 129 and 204] held that; 

• The liabilities of the company cannot be simply washed out by action of company of non-compliance of the provisions of Companies Act, non-filing of the relevant financial documents and other filings. If the submission is accepted of the Appellant that proceeding could not have been proceeded, the easiest thing for a company would be to get struck off to wash of its all liabilities, which submission cannot be accepted.

Excerpts of the order;

These three Appeals have been filed against same order dated 12.10.2023 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, Court-VI by which order I.A. No.678/ND/2023 filed by the Resolution Professional for approval of the Resolution Plan submitted by ACAIPL Investment and Financial Services Private Limited has been approved.

# 2. Company Appeal (AT) (Ins.) No.72 of 2024 has been filed by Protima Arora claiming to be Ex-Director of the Corporate Debtor. Company Appeal (AT) (Ins.) No. 129 of 2024 is filed by Pooja Film Company, who claim to have filed its claim as Financial Creditor in the CIRP of the Corporate Debtor. Company Appeal (AT) (Ins.) No. 204 of 2024 is filed by Pooja Entertainment and Films Limited, who also claim to filed its claim as Financial Creditor. Aggrieved by the order approving the Resolution Plan, there Appeals have been filed.

# 3. We need to first notice the brief facts of the case giving rise to these appeals:

Company Appeal (AT) (Ins.) No.72 of 2024

(i) An application was filed for initiation of CIRP against the Corporate Debtor on 19.07.2019. The application under Section 7 was filed by the Financial Creditor – Easy Trip Planners Limited claiming default of Rs.14,34,12,840/-.

(ii) Notice was issued by Tribunal and the Corporate Debtor filed its reply opposing Section 7 application. One of the grounds taken in the reply was that Section 7 application has been filed against a non-existent company. It is submitted that the company has already been struck off by the Registrar of Companies vide its notice dated 29.10.2019.

(iii) The Adjudicating Authority after hearing objection of the Corporate Debtor, by order dated 11.02.2022 admitted Section 7 application and appointed Ms. Maya Gupta as IRP. Ms. Maya Gupta was confirmed as Resolution Professional by order dated 29.03.2022.

(iv) Form G was published by the Resolution Professional in response to which ACAIPL Investment and Financial Services Private Limited submitted Expression of Interest. The Financial Creditor having found the Resolution Plan commercially viable approved the same by 100% voting share on 04.11.2022.

(v) An application being I.A. No.678/ND/2023 was filed by the Resolution Professional for approval of the Resolution Plan which has been approved by order dated 12.10.2023. Appellant-Protima Arora claiming to be Ex-Director of the Corporate Debtor has filed this appeal challenging the approval of Resolution Plan.

Company Appeal (AT) (Ins.) No.129 of 2024

(i) Appellant claim to have entered with the Corporate Debtor various Memorandum of Agreements (MOAs). Appellant claim to have filed claim in Form C on 10.04.2023 i.e. subsequent to approval of Resolution Plan by the CoC.

(ii) The Resolution Professional did not accept the claim of the Appellant.

(iii) Appellant filed an I.A. No.4047 of 2023 before the Adjudicating Authority seeking direction to accept the claim of the Appellant which claim was rejected by order dated 16.08.2023.

(iv) The Adjudicating Authority by order dated 12.10.2023 has approved the Resolution Plan of the Corporate Debtor, aggrieved by which order this Appeal has been filed.

Company Appeal (AT) (Ins.) No.204 of 2024

(i) Section 7 application against the Corporate Debtor was admitted on 11.02.2022. Appellant claim to file its claim in prescribed Form C on 10.04.2023.

(ii) Appellant aggrieved by order dated 12.10.2023 approving the Resolution Plan come up in this Appeal.

# 4. We have heard Shri Amar Dave, learned counsel appearing for the Appellant in Company Appeal (AT) (Ins.) No.72 of 2024. Ms. Shwetal Shepal, learned counsel has appeared for the Appellant in Company Appeal (AT) (Ins.) No.129 of 2024 and 204 of 2024. Shri Kunal Godhwani, learned counsel has appeared for the Resolution Professional.

# 5. Shri Amar Dave, learned senior counsel for the Appellant submits that the Corporate Debtor having been struck off by the Registrar of Companies, Delhi on 29.10.2019, the Corporate Debtor was no more in existence, hence, the whole exercise of approval of Resolution Plan of Corporate Debtor culminating into order dated 12.10.2023 is without jurisdiction and deserves to be set aside on this ground alone. It is submitted that the Appellant was Director of the Corporate Debtor from 18.07.2015 till it was struck off on 29.10.2019. It is submitted that no proceeding has been undertaken for revival of the Corporate Debtor, hence, Resolution Plan ought not to have been approved. Learned counsel further submitted that after Film Investment Agreement dated 23.02.2018 entered between the Corporate Debtor and the Financial Creditor, there has been Settlement Agreement dated 18.06.2018 between the Financial Creditor, Corporate Debtor and Respondent No.3 herein i.e. Super Cassettes Industries Private Limited, under which the dues of the Corporate Debtor were to be paid by the Respondent No.3 – Super Cassettes Industries Private Limited. Hence, there was no debt due on the Corporate Debtor. Appellant has also referred to Tripartite Agreement dated 21.06.2018, on stamp paper signed by Corporate Debtor, Financial Creditor and Respondent No.3.

# 6. Shri Kunal Godhwani, learned counsel for the Resolution Professional refuting the submissions of learned counsel for the Appellant submits that the Corporate Debtor in Section 7 application has raised objection regarding Corporate Debtor having been struck off from the list of Registrar of Companies, which objection was overruled by the Adjudicating Authority by passing order of admission dated 11.02.2022, which order was never challenged by the Corporate Debtor or anyone else. Hence, it is not open for the Appellant to raise objection regarding company being struck off. It is submitted that Respondent No.1 in its capacity as Chairperson of the Monitoring Committee has issued a letter to the Registrar of Companies requesting for restoration of name of the Corporate Debtor. The Respondent No.1 has submitted Form No.INC-20 to the Registrar of Companies. Respondent No.1 has also filed GNC-2 for placing on record request application for restoration of company as per the approved Resolution Plan. On the request made by Respondent No.1, the Registrar of Companies has restored the name of the Corporate Debtor and in the website of the Registrar of Companies, the company has been updated as ‘active’. It is submitted that there is no merit in the appeal. It is further submitted that the Tripartite Agreement dated 18.06.2021 and 21.06.2021 were all noticed by the Adjudicating Authority in the admission order and despite said agreements has directed for admission. It is submitted that the liability of the Corporate Debtor to make payment to the Financial Creditor shall not be wiped out by any agreement entered by the Corporate Debtor with Respondent No.3. It is further submitted that the settlement letter dated 18.06.2018 was never given effect to and no payments were made by the Corporate Debtor or Respondent No.3 to the Financial Creditor which is matter of record. It is submitted that there is no error in the approval of Resolution Plan by the Adjudicating Authority.

# 7. Learned counsel for the Appellant appearing in Company Appeal (AT) (Ins.) No. 204 of 2024 as well as Company Appeal (AT) (Ins.) No.129 of 2024 submitted that Appellants has also entered into Memorandum of Agreement with the Corporate Debtor under which the Appellants, Pooja Film Company and Pooja Entertainment and Films Ltd. have extended several financial benefits. It is submitted that the claim in Form C was filed on 10.04.2023 by Pooja Film Company as well as by Pooja Entertainment and Films Ltd. which were never admitted.

# 8. Learned counsel for the Resolution Professional opposed the submission of learned counsel for the Appellants in Company Appeal (AT) (Ins.) No. 204 of 2024 and Company Appeal (AT) (Ins.) No.129 of 2024. It is submitted that the claims filed by Pooja Film Company and by Pooja Entertainment and Films Ltd. were never admitted as they had filed the claim much after approval of the Resolution Plan by the Committee of Creditors on 04.11.2022. Hence, the claim has rightly not been accepted. It is submitted that Pooja Entertainment & Films Ltd. has also filed an application being I.A. No.4047 of 2023 seeking direction for admitting claim, which application was rejected by order dated 16.08.2023, which order has not been challenged and has become final.

# 9. We have considered the submissions of learned counsel for the parties and perused the record.

# 10. We may first notice the submission of Mr. Amar Dave, learned senior counsel that the Corporate Debtor having struck off on 29.10.2019 from the Register maintained by Registrar of Companies, the entire proceeding of CIRP against the Corporate Debtor is void and deserve to be set aside. Learned counsel for the Appellant has also referred to ‘Notice of Striking Off and Dissolution’ dated 29.10.2019, Annexure-6 to the appeal, which was published in pursuance of Sub-section (5) of Section 248 of the Companies Act, 2013. It is submitted that there is provision in the Companies Act, 2013 for revival of struck off company and no proceeding was initiated for revival of the company. The approval of Resolution Plan has to be set aside on this ground alone.

# 11. From the facts as pleaded by the Appellant itself it is clear that the Section 7 application by the Financial Creditor against the Corporate Debtor was filed on 19.07.2019. Thus, on the date when application was filed under Section 7, the company was very much in existence and subsequently, on 29.10.2019, the company was struck off by publication of notice under Section 248 Sub-section (5). Learned counsel for the Resolution Professional has referred to the order dated 11.02.2022 passed by the NCLT, New Delhi Bench, Court VI under Section 7 in CP No.(IB) 1804/(ND)/2019. The Corporate Debtor has opposed the admission of the application on the ground that the Company has been struck off. The said argument was noticed by the Adjudicating Authority after noticing the submission and has observed in Para 5 of the judgment that it is no longer res integra, IBC proceedings can still be initiated against the Corporate Debtor which is stuck off. The order dated 11.02.2022 admitting Section 7 application was never sought to be challenged and the ground that company is struck off has already been repelled by the Adjudicating Authority. As noted above, on the date when application was filed, the company was very much in existence and it was struck off in view of notice dated 29.10.2019 subsequently. We may notice the provision of Section 248. Section 248 Sub-section (7) of the Companies Act, 2013 provides as follows:

• “248. Power of Registrar to remove name of company from register of companies.

• (7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved.”

# 12. We have noticed the submission made by learned counsel for the Resolution Professional that the Resolution Professional has taken steps after approval of Resolution Plan as Chairman of the Monitoring Committee by filing necessary application and necessary form, in consequence to which the company has been now shown as ‘Active’ in the MCA records.

An Additional Affidavit dated 08.04.2024 has been filed by the Resolution Professional. In Para 12.1, 13, 14, 15, 16.1 and 17.1 following has been stated:

• “12.1 say that on 18.01.2024, Respondent No. 1 in its capacity as chairperson of the Monitoring Committee which was formed for implementation of the Resolution Plan, issued a letter to the Registrar of Companies requesting for the restoration of the name of the Corporate Debtor in pursuance to the approval of the Resolution Plan approved vide order dated 12.10.2023. Copy of Letter dated 18.01.2024 is annexed herewith and marked as ANNEXURE R-4.

• 13. Subsequently, Respondent No. 1 in pursuance of the same, filed Form No. INC-28 with the Registrar of Company. Copy of Form No. INC-28 along with receipt is annexed herewith and marked as ANNEXURE R-5.

• 14. The Respondent No. 1 also filed Form No. GNL-2 for placing on record the requisite application for the restoration of the Corporate Debtor as per the approved Resolution Plan along with Form No. DIR- 12 placing on record the details of the newly appointed management. Copy of Form No. GNL-2 along with receipt is annexed herewith and marked as ANNEXURE R-6. Copy of Form No. DIR-12 along with receipt is annexed herewith and marked as ANNEXURE R-7.

• 15. Subsequently, the Registrar of Companies in view of the request made by Respondent No. I restored the name of the Corporate Debtor. In pursuance of the same, the status of the Corporate Debtor on the website of the Ministry of Corporate Affairs has also been updated to “Active”. Copy of the Master Data of the Corporate Debtor is annexed herewith as marked as ANNEXURE R-8.

• 16.1 say that the Resolution Plan has been duly implemented and Respondent No. I has been duly discharged by the members of the Monitoring Committee from her capacity as the Chairperson of the Monitoring Committee w.e.f. 12.02.2024.

• 17.1 say that the status of the company is has been updated to ACTIVE by the Registrar of Companies on the website of the Ministry of Corporate Affairs as the CIRP has been successfully concluded and the matter now stands completely resolved. Hence, the Appellants cannot now challenge the transaction by which CIRP was initiated.”

# 13. From the above it is clear that the company is now active in the Master Data of the Corporate Debtor in the records of the MCA, which has also been brought on record as Annexure-8 to the Additional Affidavit filed by the Resolution Professional. We, thus, do not find any substance in the submission of learned counsel on behalf of the Ex-Director of the Corporate Debtor that company having been struck off on 29.10.2019 the entire proceedings of the IBC need to be set aside. Company owed financial liability to the Financial Creditor and on default committed by the Corporate Debtor, Section 7 application was filed, as noted above. The same objection was taken by the Corporate Debtor before the Adjudicating Authority that company being struck off and the company being non-existent, application under Section 7 need to be rejected was repelled by the Adjudicating Authority which order has become final. In any view of the matter, the company has been revived. The liabilities of the company cannot be simply washed out by action of company of non-compliance of the provisions of Companies Act, non-filing of the relevant financial documents and other filings. If the submission is accepted of the Appellant that proceeding could not have been proceeded, the easiest thing for a company would be to get struck off to wash of its all liabilities, which submission cannot be accepted. In any view of the matter, the company being now revived and active, we are not satisfied with the submission of the Appellant that on this ground approval of Resolution Plan be set aside. A perusal of the ROC record indicates that last Balance Sheet was filed by the Company on 21.03.2016 and it appears that due to reason of non-filing of relevant balance sheet and other records, the company was struck off.

# 14. Now we may notice the submission of the Appellant that under the Settlement letter dated 18.06.2018 and Tripartite Agreement dated 21.06.2018, the liability of the Corporate Debtor was to be discharged by Respondent No.3 – Super Cassettes Industries Private Limited. Copy of letters have been brought on the record by the Appellant which indicate that letter dated 18.06.2018 was written to Super Cassettes Industries Private Limited signed by Protima Arora on behalf of the Corporate Debtor, Mr. Bhushan Kumar on behalf of Super Cassettes Industries Private Limited as well as by Mr. Nishant Pitti on behalf of Easy Trip Planners Pvt. Ltd. The letter dated 18.06.2018 is as follows:

“Date: 18 June 2018

To

Super Cassettes industries Pvt Ltd.
E-21/6, White House,
Darya Ganj, New Delhi

Dear Mr. Bhushan Kumar,

This has reference to our Settlement Deed dated 14 June 2018 between Kriarj Entertainment Pvt. Ltd. (Kriarj) and Super Cassettes Industries Pvt Ltd (T-series) wherein T-series is supposed to pay an amount of Rs.6,75,00,000/- (Six Crore Seventy Five Lacs Only) to Kriarj as per terms of the said Settlement Deed.

You are requested to kindly make this payment of Rs.6,75,00,000/- (Six Crore Seventy Five Lacs Only) as per terms of the said Settlement Deed to Easy Trip Planners Pvt. Ltd. instead of Kriarj Entertainment Pvt. Ltd on behalf of Kriarj.

We further confirm that Easy Trip Planners Pvt. Ltd. will withdraw all pending suits, appeals, complaints or other proceedings and cease and desist from initiating any fresh litigation against T-Series and any of its films in this regard, with immediate effect.

As per our discussion, you will give producer credit to Mr. Nishant Pitti as one of the nominee of Kriarj in the film “Batti Gul Meter Chalu” and “Fanney Khan”.

Pursuant to the mutual binding understanding as recorded herein above, Kriarj and Easy Trip Planners Pvt. Ltd. hereby confirm that all rights in the said films including but not limited to Batti Gul Meter Chalu and Fanney Khan shall vest solely with T-series with immediate effect and T-series shall be free to commercially exploit all the rights in the said films with out any encumbrances or interference by Kriarj and Easy Trip Planners Pvt. Ltd.

Easy Trip Planners Pvt. Ltd. has signed this letter as a token of their acceptance of the terms mentioned herein above i.e. the binding understanding. All parties have signed hereinbelow as a token of their acceptance.

For Kriarj Entertainment Pvt. Ltd

Agreed & accepted in toto
for Easy Trip Planners Pvt Ltd

Protima Arora 

Nishant Pitti

Agreed & accepted in toto
For Super Cassettes Industries Pvt Ltd             

Witness:

Bhushan Kumar

Prerna Arora
Aadhar Card No:”

# 15. The agreement dated 21.06.2018 signed by all the three parties is as follows:

“Date: 21.06.2018

TO WHOMSOEVER IT MAY CONCERN

On the basis of the settlement that has been arrived by and in between the Parties e., Super Cassettes Industries Private Limited, Kriarj Entertainment Private Limited and Easy Trip Planners Private Limited. The Parties have decided and agreed to withdraw all complaints, suits, appeals and or any other proceedings pursing before any authorities including but not limited to the following proceedings pending adjudication before the Hon’ble Delhi High Court:

a. CS (Comm.) No. 919 of 2018, titled as Easy Trip Planners Private Limited Vs Super Cassettes Industries Private Limited & Anr.

b. CS (Comm.) No. 919 of 2018, titled as Easy Trip Planners Private Limited Vs Super Cassettes Industries Private Limited & Anr.

c. FAO (OS) (Comm.) No. 122 of 2018, titled as Kriarj Entertainment Private Limited Vs Super Cassettes Industries Private Limited.

Further, the Parties undertake that they shall abide by the terms of the settlement arrived between them.”

# 16. Appellant himself has brought on the record notice/ letter dated 23.06.2018 which was sent to the Super Cassettes Industries Private Limited on behalf of Easy Trip Planners Pvt. Ltd. The notice take objection to various steps taken by the parties and the fact the parties have not abided by the Agreement dated 21.06.2018. It was clearly mentioned that all the understanding between the parties would stand nullified. Paras 7, 8 and 9 of the said notice are as follows:

• “7. However, it is surprising to note that within 24 hours of the withdrawal of the Said Appeal and within a few days of entering into of the Said Settlement, Our Client has become aware of actions being taken by you, the Addressee, which are clearly in contradiction to the specific terms of the Said Settlement. It has come to the knowledge of Our Clients that You, the Addressee, are proceeding to release the teaser of the cinematographic film “Batti Gul Meter Chalu” without giving credit to Our Client.

• 8. Hence, it seems from your said actions, that the Said Settlement was entered into by You, the Addressee with the malafide intentions. It in fact appears that the representations and promises in pursuance of which the Said Settlement was executed, were made to commit fraud on Our Client, thereby inducing Our Client to enter into the Said Settlement. Whereas, now it appears from the conduct of You, the Addressee that you are not intending to abide by the terms of the Said Settlement.

• 9. In light of all of the above, we, on behalf of Our Client, hereby call upon You, the Addressee to (i) restrain yourself from committing any breach of the terms of the Said Settlement and (ii) issue a confirmation to Our Client that you will be abiding by the terms of the Said Settlement. We also apprise you that in case any step is taken by you to breach the Said Settlement, then all the understanding between the parties would stand nullified and we shall proceed to take appropriate legal action against You, the Addressee.”

# 17. The submission of the Appellant that under the settlement agreement dated 18.06.2018 and 21.06.2018 it was Super Cassettes Industries Private Limited who has to make payment of Corporate Debtor is no more available to the Appellant since one of the parties i.e. the Financial Creditor has already nullified all the understanding in writing within four days from the said settlement. Thus, we are of the view that liability of the Corporate Debtor to discharge its financial debt continues. More so, admission of Section 7 application on the basis of debt and default has become final and in the proceeding regarding plan approval it is not open for the Ex-Director of the Corporate Debtor to contend that there is no debt owed by the Corporate Debtor. We, thus are of the view that submission of the Appellant that debt is to be paid by Super Cassettes Industries Private Limited is fallacious and cannot be accepted. No other grounds have been pressed against order dated 12.10.2023 approving the Resolution Plan. It is well settled that approval of Resolution Plan can be interfered by the Adjudicating Authority or this Tribunal only on very limited grounds. The commercial wisdom of the Committee of Creditors in approving the Resolution Plan has been given paramount status. We may refer to the judgment of Hon’ble Supreme Court in K. Sashidhar vs. Indian Overseas Bank and Ors. – (2019) 12 SCC 150. In para 59 following has been held:

• “59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority per cent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 6-6-2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in Chapter III of the I&B Code, is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting financial creditors. That must prevail, if it is not less than the specified per cent (25% in October 2017; and now after the amendment w.e.f. 6-6-2018, 44%). The inevitable outcome of voting by not less than requisite per cent of voting share of financial creditors to disapprove the proposed resolution plan, de jure, entails in its deemed rejection.”

# 18. We, thus, are of the view that there are no grounds raised by the Appellant to interfere in the order dated 12.10.2023 approving the Resolution Plan.

# 19. Coming to the submission advanced by learned counsel for the Appellant in Company Appeal (AT) (Ins.) No. 204 of 2024 and Company Appeal (AT) (Ins.) No.129 of 2024. It is suffice to note that no claim filed by the Appellants was accepted in the CIRP of the Corporate Debtor. The claim according to the Appellant admittedly was filed subsequent to the approval of Resolution Plan by the Committee of Creditors. Pooja Entertainment & Films Ltd. has filed an application seeking admission of its claim being I.A. No.4047 of 2023, which was also got dismissed on 16.08.2023. Rejection of the I.A. No.4047 of 2023 has not further challenged. In both the Appeals Company Appeal (AT) (Ins.) No. 204 of 2024 and Company Appeal (AT) (Ins.) No.129 of 2024 no grounds have been made out to in interfere with the order dated 12.10.2022 approving the Resolution Plan of the Corporate Debtor.

# 20. We, thus, do not find any ground in the above appeals to interfere with the order dated 12.10.2023 approving the Resolution Plan of the Corporate Debtor. In result, Company Appeal (AT) (Ins.) No.72 of 2024, Company Appeal (AT) (Ins.) No. 129 of 2024 and Company Appeal (AT) (Ins.) No.204 of 2024 are dismissed.

Parties shall bear their own costs.

-------------------------------------------

Hari Babu Thota Interim Resolution Professional - It is observed that as per the provisions of Section 12A and Regulation 30A of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the mandatory requirement for filing withdrawal, is to obtain 90% approval from the Committee of Creditors. Since the Corporate Debtor has only one Financial Creditor, the withdrawal has been approved by the sole Financial Creditor, the role of the RP simply had become limited to forwarding the withdrawal application to the adjudicating authority and cannot judge over the validity of such withdrawal.

 NCLT Bengaluru (2024.03.28) in Hari Babu Thota Interim Resolution Professional [I.A. No.559/2023 & I.A NO. 655/2023 C.P. (IB) No.01/BB/2019] held that; 

• Section 21 of the Code, only deals with the constitution of the CoC. The Code contemplates meeting of CoC for the purpose of taking all decisions with regard to insolvency resolution of the corporate debtor.

• The committee in the IBC is to form a consensus of Financial Creditors. However, in the instant case since the Corporate Debtor has only one Financial Creditor and the CoC has been constituted with a Sole Financial Creditor, the same is “Valid” and cannot be termed as to defeat the purpose of formation of “Committee.

• On a careful consideration of the respective contentions advanced on either side, this Tribunal is of the considered view that the ‘Resolution Professional’ has no ‘Adjudicatory Power’ under the I & B Code, 2016 and further that when once the ‘Committee of Creditors’ is/was formed, the ‘Resolution Professional’ cannot change the ‘Committee of Creditors’

• It is observed that as per the provisions of Section 12A and Regulation 30A of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the mandatory requirement for filing withdrawal, is to obtain 90% approval from the Committee of Creditors. Since the Corporate Debtor has only one Financial Creditor, the withdrawal has been approved by the sole Financial Creditor, the role of the RP simply had become limited to forwarding the withdrawal application to the adjudicating authority and cannot judge over the validity of such withdrawal.

• Also, previously in various of judgements it’s already established that the Adjudicating Authority cannot meddle with the ‘Commercial Wisdom’ of the Committee of Creditors, when the Creditors have positively established and prayed for withdrawal of the CIRP.

• It could thus be seen that one of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.

Excerpts of the order;

# 1. The present application in I.A No. 559 of 2023 in CP(IB) No. 01/BB/2019 was filed on 01/08/2023 by the Resolution Professional Shri Hari Babu Thota under Section 12A of the I&B Code inter alia praying for withdrawal of CIRP in question, for cessation of effects of moratorium imposed on the Corporate debtor. 

# 2. Further I.A No. 655/2023 was filed by the Employees/ Operational Creditors interalia seeking to set aside the 4th COC held on 28/07/2023 and to issue direction to the RP to reconstitute COC as per the Regulation 16 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.

# 3. IA NO. 559/2023

i. Initially, CP(IB) No. 01/2019 was filed by Smt Jayanthi Ravi, U/s 7 of the IBC, 2016, R/w Rule 6 of I&B (AAA) Rules, 2016. After considering the matter, the Adjudicating Authority, admitted the case by an order dated 23/02/2022 by initiating CIRP, appoint Shri Hari Babu Tota as the IRP, imposing moratorium etc.

ii. Accordingly, the Interim Resolution Professional, caused Public Announcement dated 11/03/2022, intimating the order of Adjudicating Authority, calling upon the Creditors of Chemizol Additivies Private Limited to submit their claims.

iii. The claims received have been duly verified by the IRP/RP, by admitting the claim of the Financial Creditor to the extent of Rs 5,67,87,500/-. Employees and Workmen claims of 5,66,34,083/. Government dues of Rs 65,54,393/- and Amounts of various Operational Creditor to the extent of Rs 23,36,252/-. Hence the Committee of Creditors (COC) was constituted with sole Financial Creditor consisting of Mrs Jayanthi G Ravi. However it is noted that suspended directors have disputed the amount of claim of  the employees and workmen stating that the amount of claim is different from the dues as per the Provisional Financial Statements as on 23rd Feb 2023.

iv. Writ Petition was filed by Ms Sudha Reddy Punuru and Shri Rajappa Kantharaja, Directors of suspended Board of the Corporate Debtor, before the Hon’ble High Court Karnataka, Bengaluru Bench vide W.P No. 9600 of 2022. Hon’ble High Court imposed an interim stay over the order of this Bench dated 23/02/2022 and lifted the stay imposed vide its Order dated 30/06/2023. Further, the undersigned resumed the CIRP Process with effect from 30/06/2023.

v. Further, the Applicant (IRP) received signed application for withdrawal of CIRP in Form FA along with a copy of the Settlement Agreement dated 19/07/2023, entered between M/s K. N Biosciences (India) Private Limited and Mrs Jayanthi Ravi, and a Bank Guarantee towards the CIRP Costs of Rs 33,00,000/- on 27/07/2023. The entire liability of Mrs Jayanthi G Ravi to the extent of Rs 5,67,00,000/- was settled by K.N Biosciences (India) Private Limited, shareholder of the Corporate Debtor, on behalf of the Corporate Debtor.

vi. On request of K. N Biosciences (India) Private Limited, the RP facilitated for deposit of an amount of Rs 6,00,00,000/- (Rupees Six Crore) in CIRP Bank Account vide DD Nos. 688209 and 688210 drawn on Punjab National Bank, in favour of ‘Chemizol Additives Pvt Ltd in CIRP’.

vii. CoC in its 4th meeting dated 28/07/2023, has approved for withdrawal of Application under Section 12A r/w Regulation 30A of IBBI, admitted under Section 7, by the Financial Creditor. Accordingly Form FA dated 26/07/2023 has been filed by the RP vide Diary No.1192 dated 01/08/2023.

# 4. The Interim Resolution Professional vide Diary No. 5349 dated 18/10/2023, has submitted Citations, wherein the applicant has relied on the decisions of Hon’ble Supreme Court in Vallal Rck v. M/s Siva Industries and Holdings Limited and Ors, [(2022) ibclaw.in 63 SC] and Abhishek Singh v. Huhtamaki Ppl Ltd, [(2023) ibclaw.in 37 SC] and the order of the Hon’ble NCLAT in Anuj Tejpal v Rakesh Yavad and anr [CA(AT)(Ins) No. 298/202]. Further, written Submissions vide Diary No 330 dated 16/01/2024 was filed, wherein it is submitted that the Employees/Operational Creditors of the Corporate Debtor are apprehensive of the outcome before this Bench, approached Hon’ble High of Karnataka Bengaluru in W.P 23735/2023 praying that the Hon’ble High Court to issue Writ quashing the order likely to be passed by NCLT, Bengaluru in I.A 559/2023. However, the Hon’ble High Court of Karnataka on 17/11/2023 has dismissed the Writ Petition stating, “the company has been revived and petitioners herein are in no way connected with the same.” The Order of the Hon’ble High of Karnataka was submitted vide Memo dated 12/01/2024 in Diary No. 295.

# 5. I.A No. 655/2023

In this application, it has been submitted by the applicants as under: 

i. The Applicants in I.A 655/2023 are employees and Operational Creditors who have filed their respective Proofs of Claim under Regulation 17 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and whose claims have been admitted. The Applicants collectively are Operational Creditors having aggregate dues of more than 10% of the debt of the Corporate Debtor.

ii. On 31/07/2023 the Applicants received an email from the IRP, that Ms Jayanthi G Ravi/Financial Creditor, the Petitioner, has furnished an application in Form FA on 27/07/2023 withdrawal of CIRP of the Company, along with a settlement agreement dated 19/07/2023 between KN Biosciences (India) Private Limited and the Financial Creditor.

iii. The Applicants immediately addressed a notice to the Respondent herein contending that, upon settlement with the Petitioner creditor, Mrs Jayanthi Ravi on 19/07/2023, the corporate debtor has no financial debt as defined under IBC. Resultantly, in terms of Regulation 16 IRPCP Regulations, where the corporate debtor has no financial debt, the CoC shall consist of 18 of the largest operational creditors by value or all of the operational creditors and one representative elected by all workmen.

iv. The Applicants further contends that the CoC, not being reconstituted as on 19/07/2023, thus Coc meeting held on 28/07/2023, was not a validly constituted CoC given that the Petitioner Creditor, was not even a financial creditor as on that date. Hence, the invalidly and illegally constituted CoC did not have any right to consider and approve withdrawals of the CIRP on the basis of the sole vote of such financial creditor.

v. The notice dated 07/08/2023 was served on the Respondent RP on the same day via email. However, the Respondent RP issued an untenable reply dated 09/08/2023 denying all allegations made under the notice and further contending that CIRP was carried out as per the provisions of the IBC. The Respondent RP has further contended that an application for withdrawal of the CIRP, filed under Section 12 A of the IBC and Regulation 30A of the Regulations, has been received from the Petitioner on 27/07/2023, which application was placed before CoC on 28/07/2023, and which came to be approved by the COC, whereby the Respondent RP was authorised to file the application before this Hon’ble Tribunal. In light of the above, the Respondent RP has contended that reconstitution of the CoC at this stage does not arise. 

vi. In the present case, as on 28/07/2023, the Financial has no interest and was not a creditor or stakeholder in the company and was hence not legally authorised to have a seat on the CoC. The CoC ought to always comprise of only the creditors to the corporate debtors, and cannot, at any point in time, comprise of persons having no interest in the corporate debtor. 

vii. The IBC Code, do not contemplate a situation where the CoC comprises of a single creditor. This goes against the very concept and spirit of a “Committee” and impermissible in law. It is submitted that a Committee can never comprise of a single individual or entity, and must comprise of more than one person. It is submitted that, the moment the Committee of Creditors would potentially comprise of only one member, the RP is mandated to resort to the provision of Regulation 16 under the IRPCP Regulations and constitute the CoC accordingly. The RP has no discretion to constitute the CoC with only one member.

viii. The Respondent RP has failed to convene the 4th meeting of the purported CoC, where the resolution was allegedly passed permitting withdrawal of the petition, in accordance with law. Not only was the meeting convened without necessary members of the CoC but was also convened without providing adequate notice of 5 days to the members. Hence the 4th CoC meeting held on 28/07/2023 is void and contrary to law as the said meeting was convened without giving notice of such meeting to the employees as contemplated under Section 24 of the IBC.

# 6. The Respondent (RP) has filed written submissions vide Diary No 5331, dated 17/10/2023, and contended as under:

i. The sole Financial Creditor has mandatorily prescribed in settlement agreement dated 19/07/2023 that she would require payment of her dues prior to consenting the withdrawal and hence the same cannot be construed as a case which would require reconstitution of the Committee by ‘extinguishing’ the claim of Financial Creditor. Such settlement was made as a pre-requisite satisfying regulation 30A CIRP and the same does not require reconstitution of CoC.

ii. In regard to Regulation 16 of the IBBI (CIRP) Regulations, 2016, it is stated that Regulation only prescribes instances for formation of COC with operational Creditor, when the Corporate Debtor has no claim of  Financial Creditor. In the present case as there is existence of the Financial Creditor, invocation of Regulation 16 is does not arise. That as per Section 21(2) of the Code only unrelated Financial Creditors of CD can form CoC, and that the Code does not validate that the settlement done for the purpose of withdrawal of CIRP shall result in reconstitution of CoC.

iii. Further, that a sole member cannot constitute the Committee of Creditors is absurd, as the Committee of Creditors only requires to consist of unrelated Financial Creditors of the Corporate Debtors as per Section 21(2) of the Code. In the present matter, only Ms Jayanthi

G Ravi was eligible to be included in CoC. Hence the CoC was constituted with sole unrelated financial creditor.

iv. The employees of the Corporate Debtor filed a Writ Petition 23735/2023 before Hon’ble High Court of Karnataka, Bengaluru Bench praying that Hon’ble Court to issue a Writ or pass suitable order or provide directions quashing the order dated 19/10/2023 likely to be passed by NCLT, Bengaluru Bench in I.A 559/2023. The Hon’ble High Court of Karnataka in this regard, having understood the Corporate Debtor is being revived passed orders that the employees being no way connected with revival of Corporate Debtor dismissed the Writ Petition 23735/2023 and accordingly disposed the matter.

# 7. The Applicants have filed written submission vide Diary No. 5475 dated 30/10/2023, wherein the applicant have contested the reliance on the judgement of Hon’ble Supreme Court in Siva Industries & Abhishek Singh (supra) stating that the case pertains only to the commercial wisdom of the CoC. However in the present case RP ought have followed Regulation 16 of CIRP and reconstituted CoC and that the judgments do not address the issue that the erstwhile Financial Creditors cannot be a part of CoC. Further the Applicant have relied the decisions of Hon’ble NCLAT in Dauphin Cables v Praveen Bansal (RP) CA(AT)(Ins)No. 634-636/2023, and Bhushan Shrigapure and ors v BK Mishra and others CA(AT)(Ins)No.1504/2022.

# 8. We have heard the Learned Counsels for both the parties and perused the matter in record.

# 9. The word “Committee” has not been defined either in the Part 1 or Part 2 of the Code which deals with Insolvency Resolution and Liquidation for Corporate Persons. With regard to constitution of Committee of Creditors, provisions have been made in Section 21(2) of the Code which provides that Committee of Creditors that shall comprise of all Financial Creditors (unrelated) of the Corporate Debtor. Section 21 of the Code, only deals with the constitution of the CoC. The Code contemplates meeting of CoC for the purpose of taking all decisions with regard to insolvency resolution of the corporate debtor. The committee in the IBC is to form a consensus of Financial Creditors. However, in the instant case since the Corporate Debtor has only one Financial Creditor and the CoC has been constituted with a Sole Financial Creditor, the same is “Valid” and cannot be termed as to defeat the purpose of formation of “Committee.”

# 10. The main contention of the Applicants is that the Petitioner – Financial Creditor was ineligible to conduct and vote in the CoC held on 28/07/2023, since the debt owed to the Financial Creditor was already settled and she did not fit the criteria of being a ‘Financial Creditor’ and that the IRP in the present matter ought to have reconstituted the said CoC with the Applicants/employees as the Creditors, as per Regulation 16 of the CIRP rules. In this regard this Tribunal relies on the judgement of Hon’ble NCLAT in the matter of Mr. K.N Rajkumar v V Nagarajan, (2021) ibclaw.in 223 NCLAT, which was further affirmed by Hon’ble SC in Mr. K.N Rajkumar v V Nagarajan [(2021) ibclaw.in 150 SC] wherein it was clearly held that,

• “On a careful consideration of the respective contentions advanced on either side, this Tribunal is of the considered view that the ‘Resolution Professional’ has no ‘Adjudicatory Power’ under the I & B Code, 2016 and further that when once the ‘Committee of Creditors’ is/was formed, the ‘Resolution Professional’ cannot change the ‘Committee of Creditors’. Suffice it for this Tribunal to make a pertinent mention that the Resolution Professional/1st Respondent cannot constitute a ‘Committee of Creditors’ afresh, in negation of the earlier constituted ‘Committee of Creditors”

Further, it is observed that as per the provisions of Section 12A and Regulation 30A of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the mandatory requirement for filing withdrawal, is to obtain 90% approval from the Committee of Creditors. Since the Corporate Debtor has only one Financial Creditor, the withdrawal has been approved by the sole Financial Creditor, the role of the RP simply had become limited to forwarding the withdrawal application to the adjudicating authority and cannot judge over the validity of such withdrawal. Hence, this Tribunal is of the Opinion that the contention of reconstitution of CoC is not a matter to be judged by the Resolution Professional.

# 11. Regulation 16 of the CIRP Regulation, are to be implemented when the Corporate Debtor has no Financial Creditors and only Operational Creditors and cannot be used as a loophole to re-constitute the Committee of Creditors. In the present case, the Corporate Debtor has a sole Financial Creditor, and the RP has constituted CoC. Hence invocation of Regulation 16 of CIRP is not necessary.

# 12. As per Section 12A of the Code an application seeking ‘withdrawal’ can be allowed only if the 90 % of the Creditors voted for the same. Also, previously in various of judgements it’s already established that the Adjudicating Authority cannot meddle with the ‘Commercial Wisdom’ of the Committee of Creditors, when the Creditors have positively established and prayed for withdrawal of the CIRP. In present case, since Committee consists of sole financial Creditor and such owing to the settlement, the Financial Creditor has passed the resolution for withdrawal in the 4th CoC and accordingly, the RP has filed form FA and seeking withdrawal under section 12A of the Act, we do not find it necessary to meddle with the settlement arrived by the Corporate Debtor and the Financial Creditor.

# 13. Reliance is placed on the judgment of Hon’ble Supreme Court Mr. K.N Rajkumar (supra) wherein it was stated that, “16. It could thus be seen that one of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.” In light of the same this Tribunal is inclined to provide keep the Corporate Debtor has a going concern.

# 14. It is reiterated that the debt claims of the Applicants/employees is not affected in any manner and they are at liberty to raise their own independent claims in appropriate proceedings which would be dealt in accordance of law. Accordingly I.A 655/2023 is hereby dismissed.

# 15. Since the conditions for withdrawal for CIRP u/s 12A of the Code r/w Regulation 30A of the IBBI (IRP for Corporate Persons) Regulations, 2016 and Rule 11 of the NCLT Rules, 2016 have been satisfied, this Adjudicating Authority has no objection for withdrawal of this Petition. Therefore, the instant Applicant is hereby allowed. Therefore,

# 16. Consequently, the Corporate Debtor is hereby released from the rigours of CIRP and the IRP so appointed, is directed to handover the charge of the assets and affairs of the Corporate Debtor back to the Suspended Members of the Board of Directors of Corporate Debtor. Subsequently, IRP is discharged from his duties of the Corporate Debtor, and moratorium shall be ceased to have effect, from the date of this order.

# 17. Accordingly, I.A.No 559 of 2023 is hereby allowed and consequently, the Petition bearing C.P.(IB)No.01/BB/2019 stands closed along with pending I.As, if any.

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